Midir's Stock Market Challenge: Day 6

Results For Today

Trades:2
Total Contracts:2
Winners:2
Runner: No Runner
Scratch: 0
Losers: 0
Profit: $88.32 after commission
Gross: $100.00

Finding Bottoms

One of the hardest things to do as a trader is trying to pick a bottom.  The fact of the matter is that strong trends do not reverse on a dime, but they give the illusion that they do.  There should be multiple signals that a trend is reversing before you should even consider a counter trend trade.  Every trader wants to get in on the very bottom, take no heat, and then ride out a channel for 100 tick move.  It's never going to happen. as a trader you have one goal.  Learn to take small constant gains, and then worry about runners.

Accept the fact that you will not catch the bottom of a move and relax.  Wait for trade with the trend, and if you don't know what's going on then stay the hell out.  Personally, I think that drawing horizontal support and resistance lines does more harm then good.  I used to buy blindly and hope that the resistant or support would hold, but when I took them off my charts my trading improved dramatically.  All I do is draw channels and wait.  I wait for a entry with the trend, but I always keep an eye out for unexpected things.  If I didn't expect something, then other traders didn't either.

Hopefully, when the unexpected happens you are not in the trade.  This lets you be clear headed and think about whats going on.  A lot of trading systems try and remove the thinking aspect from their systems, and this will just hurt you in the long run. It will make it impossible to see the obvious, and you will miss out on some of the best trades.

I only start looking for a bottom when the opposite side of the trend line has be clearly broken (this works the same for finding a top, the opposite side must be broken).  I'm going to go over the example what happened today, but just know that this works in up-trends as-well just in reverse. 

Today, we had a pretty decent sell off in the aftermarket on the ES.  In all the volatility that happens on the aftermarket, the only time the trend line was broken was once at 7 am, point number one.  This screams to be that either there is too many buyers, or the move was too big and people were scared to get short.  Eventually, there was a second entry short (would have worked out and been a great trade with trend).  At this point, I would still be looking for a chance to go short, but I would keep and eye out for more clues that we reached a bottom.

I still don't think we reversed until we reach point 2.  The stock makes a new low, and instead of running stops making it going lower it breaks higher.  This means that even though it went lower then last time, people were still buying it.  I guarantee that there were a lot of bulls that were shaken out when the stock broke lower, but it still got rejected out of there.  Personally, I am probably way to conservative, and I still would not have taken the trade.

Point 3 is where the obvious trade was, and it could have made you quite a bit of money if you kept a runner off it.  The price drops down a second time and retests the new low.  Sadly, I didn't start trading until about 9:30 so I missed it.

Instead, I drew a trend line off the tops, and dragged it to the bottom.  I just waited for second entries off the bottom line, and both of them worked out for a quick 100 bucks.